Over the last year, the euro, Japanese yen and Brazilian real have all dropped by about 20 percent relative to the U.S. dollar. As a result, products priced in dollars will become more expensive in local currencies. Gartner, Inc. said CIOs of any country whose currency has weakened against the U.S. dollar need to re-examine their budget plans and account for a 20 percent increase in the price of dollar-based IT products for 2015 and beyond.
"We expect that this drop will hold through at least the end of 2016," said Roberto Sacco, research director at Gartner. "As the CIO, the most important action is to review your project plans through the second quarter of 2016. Assume there will be a 20 percent euro price increase on dollar-based IT products, and then make a plan to deal with it. This exchange rate challenge will be managed by good planning — not by rapid response."
Because of currency fluctuations, European CIOs can also expect server prices to increase by up to 20 percent. Clearly, server manufacturers will not sell products at a substantial loss, so there will be no room for negotiation. The same outcome will happen with U.S. software providers.
"Suppliers are currently repricing in local currencies. In an attempt to obfuscate this, they are also re-bundling — changing the mix of included modules, such as training and installation assistance," said Mr. Sacco.
As the year progresses, and contracts hit their anniversary dates, Gartner analysts expect U.S. software suppliers to reflect the shift in the euro with price increases of up to 20 percent. European software providers may also raise prices to maintain market rates in areas where they are not looking to compete.
CIOs must have plans to reprioritize and complete projects within budget. "See where you can minimize the impact of these changes, look for other opportunities to cut costs, and identify the risks, opportunities and funding that the plan exposes. Validate the plan with stakeholders, then work with the CFO to close any remaining gaps," added Mr. Sacco.
This approach does not only apply to the euro. "Any country whose currency has weakened against the dollar will face similar conditions to those of Europe," continued Mr. Sacco. "In situations in which there are differences in pricing power or strategic importance, some variations will occur. However, the central mechanics of the currency problem are similar."
Mr. Sacco warned that, without action, IT leaders will learn about the impacts of currency drift through proposal surprise, contract ambush and cancelled orders. These impacts will occur throughout 2015 and into 2016 as new proposals are bid, and as contracts hit annual renewal dates. "Overspend will put other projects at risk, hence the need for CIOs to re-examine their budgets now."
More detailed analysis is available in the Gartner report "Building IT Infrastructure on a Euro Budget — Why Your Servers, Software and Services Will Cost More."
Gartner analysts will further discuss cost optimization and financial management at the Gartner IT Financial, Procurement & Asset Management Summit 2015, September 21-22, in London. Members of the media can register for the event by contacting Laurence Goasduff.
Additional information from the event will be shared on Twitter using #GartnerITAM.